One of the biggest hurdles towards mass adoption of cryptocurrency as an asset class and a medium of exchange is that they’re completely unregulated. If a bank gets robbed then you can rest assured that your money will be accounted for. It’s insured. But if the worst case scenario happens, and your crypto is stolen from your exchange, then it’s gone for good. Fiat currency is insured and cryptocurrency is not.
It’s ten years out but if you listen hard enough in the right spaces you can still hear the voices of the original crypto-enthusiasts, who despite being drowned out by a sea of mainstream commentators, are still complaining about how Bitcoin in particular is in danger of losing decentralization through movements like what Gemini’s doing. The price of decentralization—the price of freedom—they say, is paid in increased risk.
I’ve never found that to be a convincing argument, and that’s primarily because there’s no mechanism in play here by which bitcoin is decentralized. The network itself is still perfectly decentralized—it’s the offloading platform here that’s having its assets insured.
Maybe I’m getting ahead of myself.
The Gemini Trust Company have worked with leading insurance brokers Aon and Marsh to launch Nakamoto, Ltd, an insurance company licensed by the Bermuda Monetary Authority (BMA) to insure Gemini Custody for up to $200 million in insurance coverage. At present, that’s the largest amount of coverage currently available in the commercial insurance market. So when (not if) Gemini is finally hacked, they’ll be able to either recoup the balance of the lost cryptocurrency.
Gemini worked with Aon to incorporate Nakamoto in Bermuda, which is known as the world’s largest captive insurance jurisdiction. With Aon as Nakamoto’s captive manager, Gemini will be able to access broader insurance markets, including the reinsurance markets, to get access to greater amounts of insurance at optimal cost. Then the company can pass the savings onto customers, scaling customers’ insurance needs as the crypto industry grows.
“Insurance is one of the main barriers to crypto mass adoption. Gemini has created a captive insurance company to address this. Obtaining meaningful insurance in the crypto industry remains a challenge, and our captive will help to increase our insurance capacity and move the industry forward,” said Cameron Winklevoss, president of Gemini.
Gemini Custody is regulated by the New York State Department of Financial Services (NYDFA) and is SOC 2 Type 1 complaint. Separate from Gemini Custody, the company also offers insurance for customers’ crypto held in its online Hot Wallet. The average crypto-holder can rest assured that they’re eligible for FDIC “pass through” deposit insurance.
“Currently, the crypto industry lacks insurance coverage similar to that available in traditional financial markets. Gemini recognized this gap and collaborated with two of the world’s largest insurance brokers, Aon and Marsh, to solve for this,” said Yusuf Hussain, head of risk for Gemini.
Additionally, Marsh’s Digital Asset Risk Transfer (DART) team brokered excess insurance from the commercial insurance markets to offer a custody insurance solution. Gemini demonstrated a secure, compliant and regulated custody offering convincing enough to get the insurance companies to underwrite a substantial amount of insurance for Gemini Custody.
Now Gemini’s customers can purchase additional insurance for their crypto assets if they’re so inclined.
Definitely a big step.
—Joseph Morton